Prime Minister Malcolm Turnbull has offered to hold "frank and open" discussions with East Timor about the unresolved maritime boundary between the two countries but stopped short of the fledgling state's request for formal and discrete talks to settle the impasse.

Dr Araujo told Mr Turnbull that the current arrangement, where the two countries share oil and gas revenue in a joint development area, does not reflect East Timor's entitlements under international law.

As a result, East Timor believes it has lost some $US5 billion in royalties and tax revenue since independence, enough to fund its entire budget for three years..

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Prime Minister Malcolm Turnbull says talks with East Timor should take place only within the context of the broader bilateral relationship and alongside 'other issues'. Credit:Andrew Meares

East Timor asserts the vast majority of the oil and gas reserves in the Timor Sea - worth about $40 billion in royalties and tax alone - would lie in its territory if the sea borders in the Timor Sea reflected the norms of the UN Convention of the Law of the Sea (UNCLOS), a contention Australia rejects.

In his response to Dr Araujo, Mr Turnbull highlighted the importance of the relationship and said there was a genuine need for "frank and open" discussions about the border.

However, he said those talks should take place only within the context of the broader bilateral relationship and alongside "other issues".

Further deflating hopes in Dili, Mr Turnbull also said Australia's long-held position was to support the treaty arrangements that underpin the current resource sharing in Timor Sea and were negotiated in "good faith" and "consistent with international law".

East Timor takes a different view in light of the revelations that the Australian Secret Intelligence Service agents - operating undercover as aid workers - inserted listening devices into the wall cavity of East Timor's government office during treaty negotiations in 2004.

East Timor has restarted international arbitration in the Hague to press its claim that the eavesdropping should render the Timor Sea Treaty void on the grounds it wasn't negotiated in good faith, as required under the Vienna Convention.

It is a development that Mr Turnbull is believed to have told Dr Araujo was a "disappointment".

Even so, the voiding of the treaty would not require Australia to negotiate a new arrangement, let alone a permanent maritime boundary.

In 2002, just before East Timor became independent, Australia withdrew from the dispute-settling authority of UNCLOS, meaning East Timor can't go to the UN for a determination on the boundary.

The Philippines has taken China to a tribunal under UNCLOS over a territorial dispute in the South China Sea and Mr Turnbull has said he was "looking forward" to the outcome.

But China says it won't recognise the tribunal's verdict and its foreign minister Wang Yi noted the inconsistency of Australia's position at a joint press conference with foreign minister Julie Bishop last month.

"Let me also point out that China is not the only country that has issued such declarations. Altogether there are 30 to 40 countries around the world that have issued similar declarations and Australia is also one of them."